Commercial Property Auctions: Talking the Talk
Seems every industry has its own private lingo. Here, Acumen Finance gives you the terminology to blend into commercial property auctions like a seasoned warrior.
Commercial Property Auctions: Talking the Talk
Probably the most notable characteristic of an auction is the auctioneer’s auction chant - a fast-paced ramble of numbers and filler words designed to build buyer anticipation, to instil that sense of “better act now, or you’ll lose out.”
Along with all the fast-talking comes a new language filled with jargon that separates the novices from the experienced. So, to help you understand that auctionese that you’ll encounter at your next commercial investment property auction, and to get you talking the talk with the pros, here is a list of terms that you should know.
Reserve Price or Auction Reserve: This is the lowest amount that the bidding must reach for the sale to be binding. It allows the seller (or seller’s agent) to ensure that the bid amount is acceptable and fair to the seller. If the reserve price is not met, the auctioneer may approach the vendor to see if he will lower his expectations.
On The Market: The auctioneer will announce: “on the market” when the reserve price has been met, meaning that the person with the highest bid after the property has gone “on the market” and when the hammer falls will be the auction winner and will be expected to exchange contracts and make the downpayment - on the spot.
Passed In: Conversely, if the bidding does not meet the reserve price, the property is then declared “passed in”, meaning it is withdrawn from the auction. If the reserve price is not met, the highest bidder shy of the reserve will have the option of negotiating directly with the seller in a private treaty sale, but the seller is under no obligation to enter an agreement.
Bidding Advances: Also called an Increment, these are predetermined increase amounts for each successive bid. While you can try to bid something other than the predetermined amount, it is up to the auctioneer whether to acknowledge the offer.
Fall of the Hammer: Once the bidding activity from the floor stops and it appears that the action has reached its highest offer, the auctioneer will start a countdown: “Going once, going twice, three-times, SOLD,” or something similar. Once the countdown is complete, the auctioneer strikes the gavel indicating the fall of the hammer, and the highest bidder is the proud new owner of said property.
Vendor Bid: A vendor bid is a bid from the current owner of the property that’s being auctioned. Depending on where the auction is located, this may be limited to only one bid, or not limited at all. We will discuss the specific rules of each of the territories in our Rules, State by State post coming soon. When the vendor makes a bid, regardless of which territory, the auctioneer must make it known to all participants that it is a “vendor bid.”
False Bid/Dummy Bid/Ghost Bid: Just like it sounds, a false bid originates from planted friends, family or employees in the audience. In the past, dubious auctioneers have “taken” bids from non-existent entities - ghosts - in an attempt to drive up prices. This is illegal. And, if you happen to be a vendor in Queensland, for instance, you need to exercise caution not to fall afoul. In Queensland there is no limit to the number of vendor bids allowed; however, anything over the reserve price is considered a “false bid” and is against the law.
Collusive practices: Like the false bid, collusive practices are against the law. It is where someone attempts to influence another to abstain from bidding, limit their bids, or take any action that prevents a free and open competition. Interestingly enough, the person who is influenced, and thereby limits his or her bidding as a result of collusive practices is also guilty of an offence and subject to fines.
Proxy Bidding: When you have a representative wielding a letter of authority and bidding on your behalf, that is a proxy bid. Proxy bidding allows people to participate remotely and is often used by those who prefer to remove themselves from the frenetic, emotional showdown of the auction scene.
New Money: This term is used to identify a new bidder who’s joining the action after others have bid against each other.
Clearance rate: The percentage of properties sold over the course of the auction in relation to the total number presented.
Addendum: An addition to or alteration of previously published property information. This information should be available before the bidding begins at the auction and, if applicable, on the advertising website.
Buyer’s Guide or Auction Catalogue: They buyer’s guide contains the property description, conditions of sale, and details on how to view the property. You can get a buyer’s guide when you register to bid or directly from the agent before the auction.
Opening Price: Usually proposed by the auctioneer, the opening price is the starting point for bidding. If it is not well received, the auctioneer may, at his discretion, reduce it and start again, or call on the floor for a starting bid.
Tenanted Commercial Property: This is a term used to describe a property that is leased at the time of auction.
Ok, now that you’re armed with some basic terminology you’ll encounter at a commercial property auction, you should be able to hold your own on the auction floor - provided you’ve done your homework first. Check out our 5 Steps to Prepare for Auction Day to make sure you’re ready. If you’ve done the due diligence, then it’s time to get your finances ready - look for our post, The Pre-Approval Process for a closer look into this topic, or contact us directly.
The experts at Acumen Finance are standing by, ready to start the pre-approval for your commercial property investment loan. We are specialists in investment lending and commercial mortgages, able to provide you with pre-qualified credit letters to get you in on the action with confidence. With our combined expertise in financial modelling, commercial real estate mortgages, and project development financing we can connect you with the most competitive Tier 1, Tier 2, or Private Lending options available and get you ready to storm the auction floor like a pro.